With 3 big exits, 2019 was marque year for Omidyar Network in India: MD Rupa Kudva

The fund started by eBay founder Pierre Omidyar, which has been investing in India for 10 years now, claims to have touched the lives of 550 million Indians, having deployed $300 million. It intends to invest $350 million over the next five years.Shailesh Menon | ET Bureau | Updated: January 18, 2020, 08:58 IST

Impact investorOmidyar Network has profitably exited three portfolio companies in India last year, reinforcing the belief that social impact investments can yield high portfolio returns as well.

The fund started by eBay founder Pierre Omidyar, which has been investing in India for 10 years now, claims to have touched the lives of 550 million Indians, having deployed $300 million. It intends to invest $350 million over the next five years.

“Year-2019 was a marquee year for us,” Omidyar Network India managing director Roopa Kudva said. “The exits we did last year highlight our ability to not just create a social impact, but also make money.”

Two of Omidyar’s portfolio companies — skill assessment startup Aspiring Minds and news content platform Daily Hunt — returned seven to ten times gains over the principal amount invested. Aspiring Minds was acquired by US-based talent evaluation leader SHL last October, while Daily Hunt was part-sold to a clutch of investors led by Goldman Sachs and Carlyle.

“This tells us that our investment model is right, and we can generate stellar returns outside of microfinance companies,” Kudva said in an interaction with ET.

Omidyar prefers to call itself an early-stage tech-focused investor with a dual chequebook — 75% of its investments are in the form of equity while the rest is in grants to fund research projects and social initiatives, such as ‘Teach for India’.

The for-profit equity investments are made in startups such as Quikr, 1mg, Vedantu, Doubtnut, Bounce, Scripbox, Indifi, Kaleidofin and Pratilipi. It currently has a portfolio of 89 companies.

Omidyar focuses on business segments such as digital identity, education, emerging tech, financial inclusion and agri-tech. “We’re targeting the next 500 million of the population, who have just started using smartphones,” the India MD said.

While 2019 has been a great year for Omidyar, it has had its share of challenges in the portfolio as well. It sold portfolio company U2opia Mobile to Comcroft Global at 72 cents to a dollar.

Seasoned impact fund managers such as Vineet Rai of Aavishkar Capital attach a 25% “failure rate” to their portfolios.

This means one out of four investments turn dud over time. “Not all highimpact ideas may be commercially viable,” said Rai, the founder chairman of Aavishkar, which manages assets worth $450 million.

“Investment exit is a challenge for all … Running a fund is not about investing; it’s about exiting investments. If you don’t exit, you’ll not be able to raise more funds,” Rai added.

Impact investments in India crossed $1 billion for the first time in 2015, as per a dated McKinsey report. As for current data, if one goes by Impact Investors Council’s (IIC) scrolls, the combined asset under management of all impact investors could be well over $6 billion — with $1 billion added every year.

“Lot of traditional investors are venturing into this space now,” IIC director Ranjna Khanna said. Traditional private equity and venture capital funds such as KKR, TPG, Everstone and True North have set up specialised funds to invest in companies that work to bring about a social impact. This, in a way, has resulted in the burgeoning of valuation of companies operating in this space.

“Valuation of companies in this space has gone up significantly since last year. But there’s not much to be done here … We’ve come to believe valuation in the VC space is very cyclical in nature — and you’ve to live through these phases,” said Kudva.

Fresh tranches of funds raised to capitalise social impact businesses have flown into sectors such as agri-tech, affordable housing, water & sanitation, affordable health and education. These, according to IIC’s Khanna, are seen as “sunrise sectors” by investors. Till recently, most impact investors were keen to invest in microfinance companies as these opened relatively easier exit options.

“Impact investors are diversifying to other sectors now … last year, agri-tech alone witnessed some deals. This rise in deal flow is resulting in a lot of exits,” said Khanna.

Even though there are more takers for profitable social ventures, sewing up a profitable exit deal is still a difficult task, opine experience impact investors.

“Exits are never easy … the stars have to align for them go through smoothly,” said Kudva.